A U.S. congressional commission monitoring the impact of China on American security and economic interests says although the world's second-largest economy has made progress since joining the World Trade Organization nearly a decade ago, many challenges remain for American and other foreign companies seeking to do business there.
Next month, marks 10 years of China's entry into the World Trade Organization, and in many ways it is still failing to live up to its commitments.
"China has yet to create a system that effectively protects intellectual property; something that is required of all WTO members. U.S. business software companies still report that China is the world’s largest source of pirated software. Approximately eight of 10 computers in China still run counterfeit operating system software. Even more disturbing, China has stepped backward from its original promise to lower trade barriers and to treat foreign products and services fairly," said William Reinsch, chairman of the U.S. China Economic and Security Review Commission.
In recent years, China has also been relying more on state owned enterprises and control of major sectors of the economy, limiting foreign access to its markets. "The government directs a vast array of subsidies to favored industries and seeks to nurture particular technologies behind protective barriers. This is contrary to the spirit, and in many cases the letter, of China’s WTO commitments," Reinsch said.
Such shortcomings are significant because after this year China will no longer be obligated to respond to questions from members about its annual progress. When China joined the WTO in 2001, it agreed to annual reviews of its compliance in the first eight years and one final review this year.
On the security front, the commission notes there is growing evidence that Beijing sponsors or condones malicious cyber activities, which facilitate industrial espionage and target U.S. and other foreign government systems.
"When combined with the military’s excessive focus on other disruptive military capabilities, such as counter-space operations, it presents an image of Chinese intentions that diverges significantly from Beijing’s official policy of peaceful development," Reinsch said.
The commission also notes that as China continues its military buildup and an effort to modernize its forces with an average annual growth of 12 percent during the past decade, Beijing has recently achieved several military firsts.
"It flight tested its first stealth fighter, conducted a sea trial of its first aircraft carrier, and made progress towards deploying the world’s first anti-ship ballistic missile," Reinsch said.
Despite such security advances and continued challenges on the economic front, Reinsch says he believes the challenges U.S.-China relations face make relations difficult, but they are surmountable.
"I think we all have to be optimistic. The relationship is so important that we have to make it work. And every American administration over the last seven and every Chinese administration over the last three or four have been, I think, determined to make it work and we get over these individual humps," Reinsch said.
But topping the list of its recommendations in the report, the commission has asked the president to assign the National Security Council to conduct a comprehensive agency-wide review of security and economic policies toward China, in an effort to assess where change is needed and address the serious challenges that remain.